Broker tips: Prudential, British Land, Tomkins

18th May 2010 12:11

Prudential launched its delayed £14.5bn rights issue yesterday, but needs a huge PR drive to convince shareholders' the cash call to fund its purchase of AIA Group is worth backing.The insurer must win the support of 75% of shareholders at its General Meeting on 7 June which can "in no way can be taken for granted", says Charles Stanley.Investors were already wary about the complexity of the acquisition, so initial opposition from the Financial Services Authority did bosses no favours."With certain large investors declaring their anxiety about the deal, management will need to work hard to make sure that the vote is passed on 7 June," thinks analyst Nic Clarke."We understand that given the adjustments that were required to be made to the funding structure of the deal, to appease the FSA, the deal will not now be earnings enhancing by 2013. This once again puts the cost of the acquisition firmly in the spotlight."Charles Stanley says hold on for now, but will include a recommendation with its rights issue note should the deal be approved.Full-year results from real estate big hitter British Land impressed Panmure Gordon enough to call it an "excellent investment proposition at current levels".The broker repeated 'buy' advice after the company reported earnings per share (EPS) of 28.4p, a dividend (DPS) of 26p, and net asset value (NAV) of 504p. It said the 27% year-on-year increase in NAV, largely due to a valuation increase on yield compression, beat its own forecast of 463p and the market consensus of 477p. "We see this as an asset backed business, with a strong balance sheet, and excellent turnover and profit visibility," it told clients in a note this morning. "The stock offers a 6.0% dividend yield and is trading at a 16% discount to our March 2011E NAV." Tomkins, the maker of systems and components for the industrial and automotive markets, could be worth up to two-thirds more than its current market price in Nomura's best-case scenario. "Extensive rationalisation, structural growth opportunities and potential for significantly higher returns warrant a re-rating of the stock, in our opinion," writes the Japanese broker.It expects structural (excess) growth of around 4-5% in the next cycle worth an extra 50-60p a share, driven by expansion in green markets, aftermarket opportunity in Asia and structural shift in the consumer demand towards small cars. Nomura maintains its 'buy' rating and increases its target price to 320p from 240p, but thinks the stock is worth about 410p in its best-case scenario.